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Working Paper
Nonlinear Pricing in Village Economies
Attanasio, Orazio; Pastorino, Elena (2019-08-26)
This paper examines the price of basic staples in rural Mexico. We document that nonlinear pricing in the form of quantity discounts is common, that quantity discounts are sizable for typical staples, and that the well-known conditional cash transfer program Progresa has significantly increased quantity discounts, although the program, as documented in previous studies, has not affected on average unit prices. To account for these patterns, we propose a model of price discrimination that nests those of Maskin and Riley (1984) and Jullien (2000), in which consumers differ in their tastes and, ...
Opportunity and Inclusive Growth Institute Working Papers , Paper 23

Working Paper
Credit Misallocation and Macro Dynamics with Oligopolistic Financial Intermediaries
Villa, Alessandro (2022-09-08)
Bank market power shapes firm investment and financing dynamics and hence affects the transmission of macroeconomic shocks. Motivated by a secular increase in the concentration of the US banking industry, I study bank market power through the lens of a dynamic general equilibrium model with oligopolistic banks and heterogeneous firms. The lack of competition allows banks to price discriminate and charge firm-specific markups in excess of default premia. In turn, the cross-sectional dispersion of markups amplifies the impact of macroeconomic shocks. During a crisis, banks exploit their market ...
Working Paper Series , Paper WP 2022-41

Working Paper
Are Supply Networks Efficiently Resilient?
Capponi, Agostino; Du, Chuan; Stiglitz, Joseph E. (2024-05-28)
We show that supply networks are inefficiently, and insufficiently, resilient. Upstream firms can expand their production capacity to hedge againstsupply and demand shocks. But the social benefits of such investments arenot internalized due to market power and market incompleteness. Upstreamfirms under-invest in capacity and resilience, passing-on the costs to downstreamfirms, and drive trade excessively towards the spot markets. There isa wedge between the market solution and a constrained optimal benchmark,which persists even without rare and large shocks. Policies designed to incentivize ...
Finance and Economics Discussion Series , Paper 2024-031

Report
Natural Centralization in Decentralized Finance
Casillas, Adrian; Farboodi, Maryam; Azar, Pablo D. (2024-05-01)
Can centralization arise absent barriers to entry? We confront this question by studying the Ethereum blockchain, a market featuring permissionless entry, standardized protocols, and a transparent public ledger. We show that natural centralization emerges when information asymmetry confronts risk-sharing. Using a novel dataset distinguishing private from public order flow, we find that a 1 percent increase in the value of private information causally increases an intermediary’s profit share by 0.57 percent. We use a dynamic bargaining model to illustrate that intermediaries leverage private ...
Staff Reports , Paper 1102

Working Paper
Screening and Adverse Selection in Frictional Markets
Lester, Benjamin; Venkateswaran, Venky; Shourideh, Ali; Zetlin-Jones, Ariel (2017-10-10)
We incorporate a search-theoretic model of imperfect competition into a standard model of asymmetric information with unrestricted contracts. We characterize the unique equilibrium, and use our characterization to explore the interaction between adverse selection, screening, and imperfect competition. We show that the relationship between an agent?s type, the quantity he trades, and the price he pays is jointly determined by the severity of adverse selection and the concentration of market power. Therefore, quantifying the effects of adverse selection requires controlling for market ...
Working Papers , Paper 17-35

Working Paper
Capacity Choice, Monetary Trade, and the Cost of Inflation
Rabinovich, Stanislav; Baughman, Garth (2020-02-24)
Firms often make production decisions before meeting a buyer. We incorporate this often-overlooked fact into an otherwise standard monetary search model and show that it has important implications for the set of equilibria, efficiency, and the cost of inflation. Our model features a strategic complementarity between the buyers' ex ante choice of money balances and sellers' ex ante choice of productive capacity. When resale value of unsold inventories is high, sellers carry excess capacity and the equilibrium is unique. But, when resale value is low, there is a continuum of equilibria, all of ...
Finance and Economics Discussion Series , Paper 2020-019

Working Paper
Self-confirming Price Dispersion in Monetary Economies
Rabinovich, Stanislav; Baughman, Garth (2018-07-10)
In a monetary economy, we show that price dispersion arises as an equilibrium outcome without the need for costly simultaneous search or any heterogeneity in preferences, production costs, or search technologies. A distribution of money holdings among buyers makes sellers indifferent across a set of posted prices, leading to a non-degenerate price distribution. This price distribution, in turn, makes buyers indifferent across a range of money balances, rationalizing the non-degenerate distribution of money holdings. We completely characterize the distribution of posted prices and money ...
Finance and Economics Discussion Series , Paper 2018-046

Working Paper
Asymmetric Information and the Death of ABS CDOs
Beltran, Daniel O.; Thomas, Charles P.; Cordell, Lawrence R. (2013)
A key feature of the 2007 financial crisis is that for many securities trading had ceased; where trading did occur, market prices were well below intrinsic values, especially for ABS CDOs. One explanation is that information had been asymmetric, with sellers having better information than buyers. We first show the information advantages sellers had over buyers in both the issuance of CDOs and, through vertical integration, performance of the CDO collateral that could well have disrupted trading after the onset of the crisis. Using a ?workhorse" model for pricing securities under asymmetric ...
International Finance Discussion Papers , Paper 1075

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